Volume 47, Issue 3

Due to the ongoing globalization of markets and enterprises labour and management face new challenges when negotiating collective wage agreements. Yet, this does not mean that nationwide collective wage agreements should be abolished. Rather, there is a need to reform them. To be able to adjust successfully to a rapidly changing environment, collective agreements have to be made more flexible. In particular, a new distribution of rule-making competencies between the social partners at the industry level on the one hand and the social partners at the company level on the other hand is needed. In future, the main task of labour and management at the industry level will be to establish a framework with general rules. The social partners at the company level will have to agree within this given framework upon specific working conditions according to the individual requirements of firms.

A “Social Market Economy” in the spirit of Ludwig Erhard is quite different from the present day economy which I call the Status Quo Economy. The Social Market Economy is substantially more deregulated, has a much smaller social security system, and a higher rate of innovation. It is argued that a transition to a “Social Market Economy” could raise the income of all income strata. Therefore using the Rawls criterion of justice, the Social Market Economy is more just than the Status Quo Economy, even though inequality is likely to be larger.

Macroeconomic theory suggests that public capital investment makes a significant contribution to economic growth. Applying an error correction model to data series for Germany shows, however, that increases in public infrastructure capital reduce private sector costs only in a negligible way. Moreover, it is demonstrated that conditional demand functions can only provide for very restricted predictions of how additional public investment outlays affect the demand for labor and private capital. Empirical estimations of productivity effects of public infrastructure usually do not account for the way government activity is financed. Neglecting tax or debt financing, may, however, entail a misspecification of the econometric equations and a misinterpretation of the empirical results. Using a simple neoclassical growth model it is shown that the productivity of public capital investment does not per se justify deficit financing. In economic terms, additional public investment spending is only reasonable if, at the margin, public capital investment is more productive than private capital investment.

This article deals with the stability and growth pact approved of by the EU’s heads of state or government in Amsterdam in June 1997. The pact’s aim is to provide budgetary discipline in Stage 3 of the European Monetary Union in order to ensure a stable common currency and the European Central Bank’s independence. Excessive deficits are evaluated by taking into account real GDP growth. A hypothetical application of the stability pact for the period 1979 to 1996 shows considerable problems for some future EMU-members if structural deficits are not reduced before entering EMU. The credibility of the stability pact within EMU will depend upon timely and exact statistical data as well as on a strict application of its rules. On both accounts there remain doubts.